Tax institute says Oklahoma sales tax holiday on clothing and shoes offers minimal tax relief
Oklahoma's annual sales tax holiday on back-to-school clothing and shoes is expected to boost business for retailers beginning on Friday as thousands of students prepare to return to the classroom.
But a nonprofit research group claims that while shoppers will get a break from paying sales taxes on some purchases during the three-day event, the overall tax benefits of the temporary sales tax exemption are minimal.
Shoes and clothing costing less than $100 are exempt from state, city, county and local sales taxes during the period that begins shortly after midnight Thursday and ends at midnight Sunday, just days before students in Oklahoma's 517 public school districts begin a new school year.
Enacted by the Oklahoma Legislature in 2007, the event is similar to sales tax holidays in 16 other states including Arkansas, Missouri and Texas, according to the Federation of Tax Administrators in Washington, D.C. And the Oklahoma Tax Commission reports that it saves Oklahoma shoppers millions of dollars in sales taxes each year.
Figures provided by the commission indicate that in 2008, the first year the sales tax holiday was in effect, shoppers saved $6.4 million in sales taxes on clothing and footwear. Last year, shoppers saved more than $7.2 million, and this year the commission estimates shoppers will save almost $7.3 million in sales taxes.
But the Institute on Taxation and Economic Policy, which works on federal, state, and local tax policy issues to promote tax fairness and sustainability, said the three-day statewide sales tax exemption provides no tax relief for low- and moderate-income taxpayers throughout the remainder of the year.
"It does provide a finite break from paying sales taxes on certain items," said Meg Wiehe, director of state policy for the institute. "But a sales tax holiday does nothing to change the upside down feature of regressive tax systems."
Sales taxes take a larger share of income from low- and middle-income families than from wealthy families, and a three-day sales tax holiday for certain items does not leaves the nature of the tax system basically unchanged, according to the institute.
"There is a little bit of savings that can happen," Wiehe said. But low- and middle-income families would benefit more from a tax policy that would that would exempt sales taxes throughout the year, she said.
"It would actually get more to the policy goals," Wiehe said.
The institute supports a permanent refundable low-income sales tax credit to offset the impact of the sales tax on low- and moderate-income taxpayers and achieve greater tax fairness, she said.
Supporters of the sales tax holiday say it provides a boost to the state's economy as well as consumers by allowing them to save money when shopping for clothing and shoes. And retailers report a significant increase in business during the event.
Carolyn Goldman, owner of Uptown Kids children's clothing store in Oklahoma City, said her sales increase 25 percent to 30 percent during the three-day event.
"I think it's a great opportunity for the customers to get a discount," Goldman said. "It kind of gears them up to say, 'OK, let's go shopping.'"